FocusAnalysts eye Middle East, North Africa as oil price dips

LONDON (ICIS)--A further deterioration of security in ?xml:namespace>Libya, Syria or Yemen could add new upwards pressure to the price of oil, analysts said on Thursday.

Energy traders are currently focused on economic and fiscal issues in the US and Europe, but the risk of further supplies being cut off from the Middle East and North Africa (MENA) should be factored into any valuation of oil, said Amrita Sen, a commodities researcher at Barclays Capital, the investment arm of the UK bank.

“What happens is that people’s interest comes and goes,” she said. “But all of these issues [in the Middle East and North Africa] are going to go on for a while.”

The US benchmark oil contract, WTI, was trading at $83.31/bbl for October on Thursday afternoon, down $4.27/bbl on earlier in the day, while in Europe, October Brent was trading at $107.62/bbl, down $2.98/bbl from the morning. Prices fell on fears over European and US fiscal and economic stability.

However Reuters, BBC News and Associated Press all carried reports on Thursday that Libyan rebel leaders had seized the country’s only operating refinery, at Azzawiya, 50km (31 miles) west of the Libyan capital Tripoli. Fierce fighting has taken place in Azzawiya over the past few days. At the same time, US president Barack Obama issued a statement calling on the president of Syria, Bashar al-Assad, to step down after treating protestors in the country with “ferocious brutality”.

Meanwhile, Yemeni president Ali Abdullah Saleh said on Wednesday that he planned to return to the capital, Sanaa, in the coming weeks. He survived an assassination attempt on 3 June, and was flown to Saudi Arabia for treatment. Yemen has become increasingly unstable since the beginning of the year as protestors have taken to the streets calling for Saleh’s ousting, and elite tribal and political factions have descended into increasingly violent conflict, which is likely to intensify should he return.

Libya produced an average of 1.7m bbl/day of oil in 2010, according to the UK’s BP, while Syrian output was 385,000 bbl/day and Yemen produced 264,000 bbl/day.

“It’s a bit of a concern, given the volumes involved,” said Samuel Ciszuk, MENA energy analyst at HIS Global Insight in the US. “There is 1.7m bbl/day shutdown in Libya, and you could have another 400,000 bbl/day and 250,000 bbl/day shut down in Syria and Yemen.”

The loss of Syrian production would be a particular problem for European refiners, Sen said, as around 50% of its output is light sweet crude, which is easy to refine. Most of the oil Libya produced was light and sweet, she added, meaning that although global oil markets are well supplied, the refinery feedstock is thin on the ground.

Oil output in Libya is currently understood to be negligible and the main pipeline linking Azzawiya with the country’s southern oil fields was cut off during fighting earlier this year, although some oil had been transported to the refinery by truck while strategic supplies remained in place in Azzawiya and Tripoli. However, the ousting of President Muammar Gaddafi could mean a swift resumption of production.

Yemen’s main oil export pipeline was cut off by rebels in March, and it remains unclear whether it has been reconnected. In July, the London-based Centre for Global Energy Studies estimated that at least half of the country’s production had been halted by unrest.

“At the moment, people are focused on Europe and the US,” said Sen. “But further unrest could push prices back up.”